Congressional Budget Office and the Minimum Wage

The Congressional Budget Office (CBO) recently released a report regarding the possible impact of raising the minimum wage on employment. In its report, the CBO also concluded that job losses “could be higher or lower” than the 500,000 number cited in the headline.

The keyword in the headline and sprinkled throughout the CBO report is “could.” Tomorrow 10 million people in the US could be hit by cars. Next week, 52 trains could fall off their tracks. Neither of these events is likely but could happen.

Unfortunately, the CBO research is entirely theoretical, using analytical models, and it ignores all of the studies that have been done using real data as opposed to theoretical models, which have demonstrated that raising the wage expense of companies does not necessarily reduce the number of people employed by those companies.

Also, the CBO report acknowledges that long-term conclusions on the effect of the minimum wage are difficult to predict. In 2007 – the last time Congress voted to raise the federal minimum wage to the current $7.25 rate – CBO reported that “the potential employment and unemployment impacts of raising the federal minimum wage rate to $7.25 per hour are difficult to predict, but are likely to be small.”

Here is an example of a study of real-life events (one of several available), not theoretical projections. In addition, I am troubled by the fact that many minimum-wage workers are also receiving SNAP, welfare and other government-provided support. This means that the taxpayers are subsidizing the low wages those employees receive from their employers, thereby encouraging and enabling those companies to pay extremely low wages too many employees.

However, it is true that the government also subsidizes the petroleum industry, one of the most profitable industries in the world, and one which certainly is not in need of any kind of government-provided, taxpayer-funded support.

Lastly, let’s take a situation focused on a single company: If raising the minimum wage would cost a company $5 million more per year in wage expense, and if doing this would have a detrimental effect on the company’s ability to grow and expand and create new employment opportunities, why doesn’t raising that same company’s CEO’s wages $5 million per year have a detrimental effect on that company’s ability to grow and expand and create new employment opportunities? Why is there no objection raising a CEO’s wage $5 million in a year but many objections from business owners to raising the wages of many of that CEO’s employees?

In the United States the average CEO earns over 470 times more income than the majority of that average CEO’s employees. In other countries in the industrialized world, CEOs typically earn 20 to 40 times their employees’ wages. This does not make a lot of sense.

 

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